labor reform

As its economy goes down the drain

A survey taken a few weeks ago found that 60 percent of young people in Spain want to work for the government. You wouldn’t think this was possible. A decade and a half ago, the country’s conservative prime minister, José María Aznar, began to deregulate the system he inherited from the socialist Felipe González and tightened the country’s budget to allow it to join the new European currency. The Spanish economy took off like a rocket, achieving rates of growth that were almost Chinese. Aside from Ireland, no place in the Western world could match it. Unemployment, which had been as high as 25 percent, quickly fell into the mid-single digits. The country’s debt fell just as fast. Aznar does not deserve all the credit. It was González who negotiated the tens of billions of dollars in “structural funds” from the European Union, which were invested wisely in highways, bridges, electrical grids, and high-speed trains. Spain gave the impression of a country that was not just dynamic but competently managed, no matter what party was in power. Such countries tend to produce young people whose ambitions go a bit further than whiling the days away behind a counter in the ayuntamiento.

But there is something rotten at the heart of the Spanish economy, and has been for quite a while. In the spectacular national elections of 2004, bombs placed by al Qaeda-linked terrorists killed hundreds of Spaniards in and around Atocha station in Madrid, and brought the socialist José Luís Rodríguez Zapatero to power. Zapatero had called for Spain to withdraw from its participation in the U.S.-led Iraq war, and the bombers claimed they had set their bombs in Iraqis’ name. So Zapatero became an accidental prime minister. He pulled out of Iraq immediately, to the delight of the Spanish electorate, which had opposed the war by majorities topping 90 percent. He passed a bunch of social reforms no one had been clamoring for: gay marriage and more liberal laws on abortion and divorce. And rather as Gordon Brown did in Britain, he recklessly allowed the state to grow faster than the economy. But aside from that, he left Aznar’s free market economy pretty much alone. The economy was almost a distraction for Zapatero. It was not the kind of politics he cared about, and when things began to go desperately wrong for Spain in the fall of 2008, he refused to use the word “crisis,” preferring to describe what was happening as a “deceleration.”

But signs of trouble were proliferating. During Zapatero’s campaign for reelection in early 2008, his economics minister, Pedro Solbes, debated Manuel Pizarro, the economics guru for the main opposition party, now led by Mariano Rajoy. Pizarro warned of certain statistics that showed Spain drifting into crisis. What new factor, he asked Solbes, had led Spain’s current account balance to rise from 4 percent in 2001 to 10 percent in 2007? Why had the price of clothes, and the price of fruit, risen three times as fast in Spain as it had in the rest of Europe? Pizarro raised these questions in the curt, cold manner of the businessman that he was. Solbes was more easygoing and professorial. The big point he wanted to introduce was: Crisis? What crisis? The inflation was due to fluctuations in the price of oil, he explained, and Pizarro’s worries were exaggerated. Solbes disparaged the conservative plan for allowing people to invest their own retirement funds as “the Pinochet model.” In the phone-in poll after the debate, the consensus was that Solbes had blown Pizarro away, and this was the verdict of Spanish voters, who gave the Socialists and Zapatero another term. It sure does not look that way if you watch the debate now.